Every UK company, no matter how small, must file accounts at Companies House each year. These accounts must be prepared in accordance with both the law and formal accounting standards and they must be filed within certain deadlines. Moreover, every shareholder must receive a set of these accounts (unless they have opted to waive them or receive an abridged version instead) and HM Revenue & Customs must be sent the accounts online with the corporation tax return.
The level of disclosure varies according to the size and type of company. Major changes have been made to the way small company accounts are prepared and filed for all accounting periods beginning on or after 1 January 2016. The old Financial Reporting Standard for Smaller Entities (the FRSSE) is now defunct from that date onwards. smaller companies now have a choice between Financial Reporting Standard 105 (for micro-entities) and Financial Reporting Standard 102 with reduced disclosures (for larger companies). To qualify as a micro-entity, a company must satisfy at least 2 of the following 3 conditions:
a) its turnover for the accounting period was no higher than £632,000
b) its total assets do not exceed £316,000
c) the average number of employees was no more than 10
Smaller companies also have the option of restricting the amount of information in the accounts filed. The old “abbreviated accounts” for Companies House have now gone, but a micro-entity can instead file basic accounts consisting solely of the Balance Sheet (or Statement of Financial Position as we now have to call it). As before, there is no profit & loss account or directors report, but there are also no notes now whatsoever, so no need to disclose accounting policies (there are none under FRS 105 anyway) or analyse fixed assets, debtors and creditors. However, if there are loans or guarantees to directors or shareholders, these must be disclosed as a footnote on the Balance Sheet.
These do not take the place of the full accounts as these must still be prepared for the shareholders and the tax authorities but they do enable a company to restrict the amount of information that is publicly available.
Larger companies using FRS 102 (or micro entities not wishing to use FRS 105) can file either “filleted” accounts (with no profit & loss account or director’s report) or “abridged” accounts. These do include the profit & loss account (or Income Statement as it has been re-named) but in both this and the Balance Sheet the line items are restricted, so you cannot tell how gross profit has been arrived at or see a breakdown of debtors and creditors. Abridged accounts are essentially the same as the reduced disclosure accounts allowed under FRS 102. To qualify for these you need to notify the shareholders each year and hope that none of them object. The company must also satisfy at least 2 of the following 3 conditions:
a) its turnover for the accounting period was no higher than £10.2 million
b) its total assets do not exceed £5.1 million
c) the average number of employees was no more than 50
A small company can “fillet” its abridged accounts and elect not to file a profit & loss account and/or directors report, so the accounts on the public record may contain even less information than the old abbreviated accounts.
Any company not qualifying for abridged accounts must prepare accounts under FRS 102 without the reduced disclosures or adopt IFRS instead (International Financial Reporting Standards).
In addition to this, most small companies are able to take advantage of audit exemption. There once was a time when every UK company, even the tiniest, had to have its annual accounts audited. Obviously this was quite costly for the vast majority of companies which are both fairly small and owned and managed by the same people. It was finally decided to remove the audit requirement for the smallest companies in 1993. Since then, the thresholds for audit exemption have gradually risen in line with EU legislation and are now the same as the thresholds quoted above for abridged accounts. Prior to 1/1/16 the turnover threshold was just £6.5 million, so £10.2 million is a big increase. However, any company electing not to have an audit must include a statement on the Balance Sheet disclosing this fact in the prescribed wording.